Customer churn rate is the percentage of your customers or subscribers who cancel or don't renew their subscriptions during a given time period.
Churn rate is a critically important metric for companieswhose customers pay on a recurring basis -- like SaaS or other subscription-based companies. Regardless of your monthly revenue, if your typical customer doesn't stick around long enough for you to at least recoup your average customer acquisition cost (CAC), you're in trouble.
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To calculate customer churn rate, designate a time period and tally up the total number of customers you've acquired and the number of customers who churned during that time period. Then, divide the number of customers who churned by the total number of customers acquired, and multiply that decimal by 100% to calculate your churn rate.
If that math is as intimidating to you as it is for me, you can use a tool that automatically calculates churn rate. Let's explore one of those tools in the section below.
Featured Tool: Churn Rate Calculator
HubSpot's Customer Service Metrics Calculator calculates both revenue churn and customer retention rate, in addition to eight other imperative customer success metrics. Download it now and follow along to determine your own business' churn and retention rates.
Or, if you want to determine your churn rate manually, read on for an explanation and example of calculating this metric.
How to Calculate Churn Rate
Remember, the steps to calculate churn rate are:
Determine a time period.
Determine the number of customers acquired in this time period.
Determine the number of customers lost or churned in this time period.
Divide the number of lost customers by the number of acquired customers.
Multiply that number by 100%.
As an example, let's say your software company acquired 500 customers last quarter. However, you also lost 50 customers due to expired contracts and a few poor customer service interactions.
This would mean your quarter's customer churn rate would be the 50 churned customers divided by the 500 acquired customers, and 50 divided by 500 is 0.10.
Multiplied by 100%, this gives you a customer churn rate of 10%.
Now that you've found out what your churn rate is, you're probably wondering how you can reduce it. Take a look at the next section for some best practices that can help you decrease churn at your business.
How to Reduce Customer Churn
1. Analyze churn when it happens to improve customer service.
Despite your best efforts, customer churn will happen and when it does, use it as an opportunity to dig into what led the customer to leave, and what you can do to prevent a similar customer from churning for the same reason.
One crucial step is to track you churn and retention rates. You can do this with HubSpot's Customer Service Metrics Calculator – a free tool to calculate and document your retention rate over time.
You can use instances of churn to dig into individual customer support rep or manager performance, analyze your product or service against competitors, or identify core sharp edges in the customer experience that you want to prioritize in the quarter ahead with your product and development teams.
2. Start customers off on the right foot.
You can work to prevent customer churn from the moment someone becomes a customer by creating a robust new onboarding process. Use a new customer welcome email, dedicated 1:1 and online customer onboarding, and create educational content on your blog, social media, and video channels to instruct customers and show them how to get optimal value from your product or service.
3. Invest in more training for support and sales reps.
Sales reps should be selling the true value of your product or service so customers don't feel swindled. Additionally, customer support employees should be well-equipped to manage any issue that comes their way to secure customer satisfaction. Investing in processes and resources for these two departments can have a drastic impact on churn rate.
4. Ask for feedback at key moments – and respond promptly.
Make sure you're consistently asking for customer feedback at key moments across the customer experience. If you've already identified that customers are likely to churn if they don't log into your tool every 15 days, ask them for feedback around day 10 and try to re-engage them. If they hit a milestone using your product or service, ask them for feedback after that moment. Figure out the key moments that make or break a happy customer and ask for feedback at those touchpoints to strengthen the relationship.
Featured Tool: 20 Free Review Response Templates. Sometimes, feedback comes in the form of a scathing online review. Use these templates to respond to those reviews appropriately and increase your chances of retaining and delighting that customer.
5. Communicate proactively with customers.
Build rapport with your customers by communicating with them proactively so they view you as a trusted partner. Periodically reach out with content you think they'll find interesting or helpful, connect and engage with them on social media, and reach out if issues or outages crop up on the product side so they know they can depend on you.